Does The SEC’s Regulation A Proposal Defy Congress’ Clear Intent?

This week’s announcement by the Securities and Exchange Commission that it is proposing amendments to update and expand Regulation A has attracted quite a bit of attention. David Lynn writing in Broc’s Blog took special note of the proposed preemption of state blue sky laws. As expected, additional preemption did not sit well with the states. Days before the SEC issued its proposed rule amendments, the North American Securities Administrators Association (NASAA) wrote to Chairwoman Mary Jo White arguing against preemption and urging “in the strongest terms” that the SEC take account of recent state efforts to establish multi-state review process for offerings conducted under Section 3(b)(2) of the Securities Act of 1933.

NASAA noted that the term “qualified purchaser” is not new and that it would be “wholly inappropriate” for the SEC to redefine or misapply the term. NASAA also cited Congressional intent, arguing:

For the Commission to propose a rule that would, by regulation, undermine Congress’ recent judgment and clear, longstanding intention in this regard would be ill-advised and subject to challenge.

While the SEC is soliciting comments on the possibility of changing the definition of “qualified purchaser” if the states adopt a coordinated review system, the SEC’s decision to propose preemption and solicit comments on alternatives must be very humiliating for the states. The states would have been in a much stronger position had they actually implemented a multi-state coordinated review program rather simply anticipating the adoption of a program. As a former state securities regulator, I believe that there is a place for state securities regulation. However, the states will need to be far more nimble.

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